The balance of payments is where all of the financial transactions between one country and the rest of the world is recorded.
It is divided into two parts:
Current account – this is where all of the import and export of goods and services is recorded
Capital account – this is where the movement of capital is recorded. Capital refers to the money that moves in and out of countries in the form of foreign investment and foreign aid.
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Key terms:
Current account surplus – where the total value of exports exceeds the total value of imports.
Current account deficit – where the total value of imports exceeds the total value of exports.
Remittance payments – money which is earned by foreign workers and then transferred back to their home country.